ACIT, Faridabad V. Sh. Purshottam Lal Gupta, Faridabad

ITA 4076/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3877 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 29-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 08-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAREON
• Assessee Lawyers: K K AGGARWAL
• Keywords: Depreciation; Bad and doubtful debts; Assessment record
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH-F, NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A.NO.4076/DEL/2009 ASSESSMENT YEAR 2006-07 ASSTT.COMMISSIONER OF INCOME-TAX, VS. SH. PURS HOTTAM LAL GUPTA CIRCLE-II, FARIDABAD. PROP. M/S METAL TRADING CO., B-271, NEHRU GROUND FARIDABAD, HARYANA. PAN :AALPG3424H (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. BANITA DEVI NAREON, SR. D.R. RESPONDENT BY : SHRI K.K. AGGARWAL, A.R. O R D E R PER SHAMIM YAHYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDE R OF THE CIT(A), FARIDABAD DATED 13.8.2009 AND PERTAINS TO A SSESSMENT YEAR 2006-07. 2. THE FIRST ISSUE RAISED IS THAT THE CIT(A) HAS ER RED IN DELETING THE ADDITION OF RS.59,50,000/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF BAD DEBTS WRITTEN OFF PERTAINING TO M/S RAJDHANI TUBES (P) LTD. 3. ON THIS ISSUE, THE FACTS AS NARRATED BY THE ASSE SSING OFFICER ARE AS UNDER:- ITA NO.4076/DEL/09 2 THE ASSESSEE HAS DEBITED TO ITS PROFIT AND LOSS AC COUNT AN AMOUNT OF RS.59,50,000/- ON ACCOUNT OF BAD DEBT S WRITTEN OFF. IT IS SEEN THAT THE ASSESSEE HAD SOLD SOME MATERIAL TO ONE RAJDHANI TUBES PVT. LTD., 43, RAJPU R ROAD, CIVIL LINES, NEW DELHI. ON VERIFYING THE LEDG ER ACCOUNTS OF THE DEBTOR AS IN THE BOOKS OF THE ASSES SEE FOR THE YEARS 2003-04 TO 2005-06 IT IS SEEN THAT TH E ASSESSEE HAS EFFECTED SOME SALE OF GOODS TO THE DEB TOR PARTY AND MOSTLY LOANS TO THE SAME PARTY SO THAT IT S TURNOVER PLUS LOANS GIVEN TO THE PARTY HAS BEEN RS. 75.76 LAKHS IN TH YEAR 2003-04 (SALE RS.49.00 LAKHS AND L OANS OF RS.22.00 LAKHS), WITH DEBIT BALANCE OF RS.1.32 CRORES. IN THE FOLLOWING YEAR 2004-05, THE ASSESSEE HAS HAD NO SALE TURNOVER WITH THIS SAME PARTY, ONLY LOAN-PAYME NT OF RS.1.97 CRORE WITH A DEBIT BALANCE OF RS.1.26 CRORE S. IN THE INSTANT ASSESSMENT YEAR, THERE IS NO TRANSACTIO N AT ALL DURING THE WHOLE OF THE YEAR AND THE ASSESSEE HAS WITHOUT ANY RHYME OR REASON WRITTEN OFF A PART OF T HE DEBIT BALANCE THAT IS RS.59.50 LAKHS OUT OF THE TOTAL DEB IT BALANCE OF RS.1.26 CRORES. THE ASSESSEE HAS ON ITS OWN CHOSEN TO KEEP THE DEBIT BALANCE AMOUNT OF RS.67.00 LAKHS OUTSTANDING AT YEAR END AGAINST THIS PARTY. THE ASSESSING OFFICER OBSERVED THAT THE WHOLE TRANS ACTION WITH THE PARTY WAS THAT OF GIVING AND TAKING OF LOANS AND NO T OF SALE AND PURCHASE. THE ASSESSING OFFICER FOUND THAT IT WAS MOST UNREASONABLE AND BEYOND ONES COMPREHENSION AS TO W HY ANYONE SHOULD WRITE OFF PART OF THE DEBIT BALANCE AS, ACCO RDING TO THE AO EVEN IF THE DEBTS WERE TO BE WRITTEN OFF, IT WOULD NORMALLY BE WRITTEN ITA NO.4076/DEL/09 3 OFF ENTIRELY. THE ASSESSING OFFICER FURTHER OBSERV ED THAT SECTION 36 DOES NOT PRESENT THE ASSESSEE WITH AN UNBRIDLED OPP ORTUNITY TO MANIPULATE ITS INCOME OF VARIOUS YEARS OF CLAIMING BAD DEBTS AS AN WHEN REQUIRED. PLACING RELIANCE UPON A DECISION OF HONBLE KOLKATA HIGH COURT IN THE CASE OF COATS INDIA LTD. V. CIT, 232 ITR 322 AT PAGE 329 (KOL.), THE ASSESSING OFFICER DISALLOWED T HE CLAIM OF BAD DEBTS. 4. UPON ASSESSEES APPEAL, LD. CIT(A) REFERRED TO T HE EVIDENCE FILED BY THE ASSESSEE BY WAY OF AN AFFIDAVIT WHICH HE OBSERV ED WAS CLEARLY A CRIMINAL COMPLAINT. THIS, ACCORDING TO LD. CIT(A), CLEARLY ESTABLISHED THE CIRCUMSTANCES AND THE EFFORTS MADE BY THE ASSESSEE TO RECOVER THE OUTSTANDING DUES FROM M/S RAJDHANI TUBES PVT. LTD. THE LD. CIT(A) FURTHER REFERRED TO THE CONTENTS OF THE COMPLAINT WHICH ACC ORDING TO HIM SHOWED THE IRRECOVERABLE NATURE OF THE DEBTS INVOLVED. TH EREAFTER, DWELLING UPON THE PROVISIONS OF SECTIONS 36 AND 36(2), LD. CIT(A) FURTHER HELD AS UNDER:- ..SINCE THE ASSESSEE DURING THE YEAR HAD WRITT EN OFF BAD DEBTS TO THE EXTENT OF RS.59,50,000/- AS IRRECOVERA BLE IN HIS BOOKS OF ACCOUNTS, WHICH FACT HAS CLEARLY BEEN ADMITTED BY T HE A.O., AS PER THE CIRCUMSTANCES AND RECALCITRANT CONDUCT OF THE D EBTOR, IT WAS ON ACCOUNT OF THE BEST SENSE OF THE ASSESSEE AS A PRUD ENT AND REASONABLE BUSINESSMAN, WHICH HAS NOT TO BE DETERMI NED BY THE REVENUE, AS PER LAW. ACCORDING TO HIS PRUDENCE, ON LY A PART OF THE TOTAL DEBT BALANCE OF RS.1.26 CRORE AMOUNTING TO RS .59,50,000/- HAD BEEN WRITTEN OFF AS IRRECOVERABLE BY THE ASSESSEE I N THE BOOKS OF ITA NO.4076/DEL/09 4 ACCOUNT. THEREFORE, WITH RESPECT TO THE CHANGED LA W AS PER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE INCOME-TA X ACT, 1961, SUCH PORTION OF BAD DEBT WRITTEN OFF WAS ALLOWABLE AS SU CH UNDER THOSE SECTIONS. AGAINST THIS ORDER, REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIE S IN THE LIGHT OF MATERIALS PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAS NOT APPRECIATED THE FACTS OF THE CASE. HE CLAIMED THAT IN THE EARLIER YEARS, ASSESSEE WAS ENGAGED IN TRADING WITH THE PARTY. SUBSEQUENTLY, ASSESSEE HAS ONLY PAID MON EYS TO THE SAID PARTY. GIVING DETAILS, THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT ASSESSEE HAD SOLD GOODS TO THE SAID PARTY IN FINANCIAL YEARS 2000-01 AND 2001-02 AND THEREAFTER ASSESSEE HAD ONLY GIVEN MONEYS TO TH E SAID PARTY UP TO THE CLOSE OF THE FINANCIAL YEAR 2004-05. THE TOTAL ACC UMULATED BALANCE IN THE ACCOUNT WAS RS.1,26,50,000/- OUT OF WHICH RS.59,00, 000 PERTAINED TO THE AMOUNT OF SALES WHICH WAS WRITTEN OFF AS BAD DEBTS AND THE BALANCE ON ACCOUNT OF MONEY GIVEN WAS RS.67,00,000/- WHICH REM AINED OUTSTANDING. HENCE, THE LD. COUNSEL FOR THE ASSESSEE CLAIMED THA T IN VIEW OF THE PROVISIONS OF THE ACT, ASSESSEE AS A PRUDENT BUSINE SSMAN DECIDED THAT THE AMOUNT WAS NOT RECOVERABLE AND AS PER PROVISIONS OF SECTION 36 IT WROTE OFF RS.59,50,000/- BEING BAD DEBTS. THE LD. COUNSEL SU BMITTED THAT LD. CIT(A) HAS RIGHTLY DELETED THE IMPUGNED DISALLOWANCE. ITA NO.4076/DEL/09 5 6. LD. D.R., ON THE OTHER HAND, VEHEMENTLY SUPPORTE D THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. W E FIND THAT THE TOTAL BALANCE OUTSTANDING IN THE NAME OF M/S RA JDHANI TUBES (P) LTD. IN THE BOOKS OF THE ASSESSEE AS ON 1.4.2005 WA S RS.1,26,50,000/-. AGAINST THIS AMOUNT THE ASSESSEE HAD WRITTEN OFF RS.59,50,000 AS BAD DEBTS LEAVING A CLOSING BALANCE OF R.67,00,000/- IN THE ACCOUNT. THE ASSESSING OFFICE R OBSERVED THAT ASSESSEES BUSINESS WAS NOT THAT OF TRADING BUT IT HAD ONLY GIVEN MONEYS TO M/S RAJDHANI TUBES (P) LTD. WHEREAS, ON THE OTHER HAND, ASSESSEES CLAIM IN THIS REGARD IS THAT IN THE EARL IER PERIODS, IT HAD SOLD GOODS TO THE CONCERNED PARTY AND THEREAFTER IT HAD ALSO ADVANCED MONEYS TO THE SAID PARTY. THE SUM OF RS.5 9,50,000/- HAS BEEN CLAIMED TO BE OUTSTANDING OUT OF THE SALES MAD E TO THE SAID PARTY AND THIS THE ASSESSEE HAD WRITTEN OFF AS BAD DEBTS AS PER THE MANDATE OF SECTIONS 36 AND 36(2) OF THE INCOME-TAX ACT. THESE SALES ARE SAID TO HAVE BEEN MADE IN 2000-01 AND 200 1-02. WE FIND THESE FACTUAL ASPECTS OF ASSESSEES CLAIM HAVE NOT BEEN VERIFIED BY THE ASSESSING OFFICER OR THE LD. CIT(A). WHILE ASS ESSING OFFICER HAS PROCEEDED ON THE PREMISE THAT ASSESSEE HAS MAINLY G IVEN LOANS, THE CIT(A) HAS NOT GIVEN A FINDING ON THE VERACITY OF A SSESSEES CLAIM IN THIS RESPECT. IT IS TRUE THAT AFTER THE AMENDMENT OF THE ACT, ASSESSEE CAN WRITE OFF THE BAD DEBTS BY WRITING THE SAME IN THE ITA NO.4076/DEL/09 6 BOOKS OF ACCOUNT. THE DECISION TO WRITE OFF IN THI S REGARD HAS TO BE THAT OF A PRUDENT BUSINESSMAN. WHILE THE ASSESSING OFFICER HAS FOUND THAT IT IS STRANGE THAT ASSESSEE HAS NOT WRIT TEN OFF THE ENTIRE AMOUNT, LD. CIT(A) HAS PROCEEDED TO RELY UPON THE C OMPLAINT AGAINST THE DEBTOR. WE FIND THAT THERE IS NO FINDING OF TH E ASSESSING OFFICER ON THE MATERIAL RELATING TO THE CRIMINAL COMPLAINT ALLEGEDLY FILED BY THE ASSESSEE AS CONTENDED BEFORE LD. CIT(A). IN TH ESE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, INTERESTS OF JUSTICE WOULD BE SERVED IF THE MATTER IS REMITTED TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE SAME AFRESH. ACCORDINGLY, THE ISSUE ST ANDS REMITTED TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE IS SUE AFRESH IN THE LIGHT OF OUR AFORESAID OBSERVATIONS. 8. NEXT ISSUE RAISED IS WITH REGARD TO DELETION OF ADDITIONS OF RS.19,754 AND RS.97,088/- ON ACCOUNT OF TELEPHONE E XPENSES AND VEHICLE RUNNING EXPENSES RESPECTIVELY. 9. THE ASSESSING OFFICER HAD MADE THE ADDITIONS HOL DING AS UNDER:- 5.1 DURING THE ASSESSMENT PROCEEDINGS, IT IS NOTIC ED THAT ASSESSEE HAS DEBITED THE FOLLOWING EXPENSES IN THE PROFIT AND LOSS ACCOUNT. VEHICLE REPAIR AND MAINTENANCE 273,622 INTEREST ON CAR LOAN 13,845 INSURANCE 20,926 DEPRECIATION ON CAR 313,856 TELEPHONE EXPENSES 125,754 TOTAL 748,003 ITA NO.4076/DEL/09 7 5.2 IN THE TAX AUDIT REPORT THE ASSESSEE HAS SHOWN NIL EXPENSE IN RESPECT OF PERSONAL EXPENSES ON THESE HE ADS. THE USE OF CAR AND TELEPHONES FOR PERSONAL PURPOSES CAN NOT BE RULED OUT. THE ASSESSEE HAS NOT SHOWN ANY CAR OR T ELEPHONE EXPENSES IN HIS CAPITAL ACCOUNT. THE ASSESSEE HAS M ORE THAN ONE CAR. NO LOG BOOK OR TELEPHONE REGISTER IS STAT ED TO BE MAINTAINED. IT CANNOT BE SAID THAT THE ABOVE EXPEN SES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS, AS PER SEC. 37 OF THE I.T ACT. IT IS CON SIDERED REASONABLE TO DISALLOW 1/5 TH OF THESE EXPENSES FOR THE ABOVE REASONS. THE DISALLOWANCE IS WORKED OUT AS UNDER:- TOTAL EXPENSES RS.748,003 DISALLOWANCE 1/5 TH OF THESE EXPENSES RS.149,600 10. UPON ASSESSEES APPEAL, LD. CIT(A) REFERRED TO THE ASSESSEES SUBMISSIONS. HE FOUND THAT ASSESSING OFFICER HAD MA DE THE DISALLOWANCES IN A ROUTINE AND CASUAL MANNER WITHOU T PINPOINTING ANY SPECIFIC INSTANCES OF PERSONAL USE. HE ALSO RE FERRED TO THE ASSESSMENT ORDERS OF OTHER ASSESSMENT YEARS. LD. CIT(A) OBSERVED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, 40% DISALLOWANCE WAS MADE OUT OF RESIDENTIAL AND MOBILE PHONES. FOR THE CURRENT ASSESSMENT YEAR ASSESSEE HAD HIMSELF MA DE A DISALLOWANCE OF 20% OF THE TOTAL TELEPHONE EXPENSES . HOWEVER, AS PER THE HISTORY IN THE ASSESSMENT YEAR 2004-05, THE ASSESSEE HAD NOT WORKED OUT ANY DISALLOWANCE OUT OF THE MOBILE E XPENSES DEBITED AT RS.32,240 PERTAINING TO THE PROPRIETOR, SHRI P.C . GUPTA. THEREFORE, KEEPING IN VIEW THE INCREASE IN TURNOVE R THIS YEAR AND PAST HISTORY, LD. CIT(A) CONSIDERED IT FAIR AND REA SONABLE TO EFFECT ITA NO.4076/DEL/09 8 1/4 TH DISALLOWANCE OUT OF THE TOTAL TELEPHONE EXPENSES C LAIMED AT RESIDENCE AND PERSONAL MOBILE PHONE OF THE ASSESSEE . AS REGARDS CAR EXPENSES, GIVING SAME REASONS AS FO R PHONES, LD. CIT(A) HELD THAT 1/10 TH DISALLOWANCE OUT OF RS.2,73,622 WAS JUSTIFIABLE. AGAINST THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. AS PER ADMITTED FACTS OF THE CASE, ASSESSING OFFICER H AS MADE THE DISALLOWANCE IN THIS REGARD WITHOUT PINPOINTING ANY SPECIFIC SHORTCOMING IN THE VOUCHERS MAINTAINED BY THE ASSES SEE. IT IS ALSOALSONOT THE CASE THAT ANY OF THE EXPENDITURE IS BOGUS. LD. CIT(A), ON THE OTHER+ HAND, HAS PASSED A REASONABLE ORDER BASED ON FACTS OF THE CASE AND TAKING INTO ACCOUNT PREVIOUS ASSESSMENT RECORDS. THIS, IN OUR CONSIDERED OPINION, NEEDS NO INTERFERENCE. ACCORDINGLY, WE UPHOLD ORDER OF LD. CIT(A) ON THIS ISSUE AND THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21.5.2010. SD/- SD/- ( I.P. BANSAL ) ( SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21.5.2010. VSK COPY TO:- ITA NO.4076/DEL/09 9 1. APPELLANT-REVENUE 2. RESPONDENT- ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. DEPUTY REGISTRAR